Natural Gas Impact Fee Principles

John Monaghan joined The Heartland Institute in June 2011 as Heartland’s energy and environment legislative specialist. John graduated with honors from the University of Michigan – Ann Arbor in 2009 with an environmental studies degree where he specialized in business, law, and the environment. His studies involved extensive fieldwork researching marine protected areas in the Turks and Caicos, freshwater ecosystems in Northern Michigan, hydropower development in Chile, and climate change in the Norwegian arctic. During his final semester at the University he taught a course on pop culture and environmental thought.

Upon graduation, John spent two years at the Department of Justice in the Wildlife and Marine Resources Section of the Environment and Natural Resources Division. While there, he provided legal support on issues related to endangered species listing and critical habitat designations, sustainable fisheries, and the intersection of these issues with development.

In the coming days and weeks, the Pennsylvania legislature will consider the size and scope of an expected impact fee on hydraulically fractured natural gas well operators as part of a greater package updating regulations on the industry. When considering this bill, legislators should insist that the fees are narrowly tailored to address the actual impacts associated with the process and not be used to fund unrelated programs.

Businesses should pay the cost for government they use. If a business is not paying for its negative impacts on the environment and/or infrastructure, it is appropriate to charge a fee to pay for the government’s cost to remediate the problem. Since drilling’s impact on government does not increase if a gas well is more profitable, a “fee” should not be tied to production.

Any fee should be directly related to uncompensated costs of government. A new fee should not be imposed to extract additional revenue for unrelated government purposes or subsidies. For example, Growing Greener is not directly related to remediating problems caused by the natural gas industry.

Any fee rate should be established in the context of what businesses are already paying in taxes, fees, and contributions to local communities and the state, setting the fee rate at a level to only cover those uncompensated costs of government.

Any fee should be imposed at the county or municipal level, not at the state level. This ensures competition between local governments, discourages excessive fee rates, and reduces the threat of cross-subsidization and redistribution of additional fee revenues to unrelated government purposes.

Before imposing a new fee, elected officials should consider if current local taxes and fees should be revised to cover any uncompensated costs of government. For example, would it be appropriate to adjust local hotel and emergency services taxes to better address the influx of large numbers of workers into sparsely populated areas of Pennsylvania? Or, are there other fee/tax mechanisms that can be more directly tied to any uncompensated costs of government?